Brain Drain Could Sour Take-Two Deal

In its pursuit of Take-Two Interactive TTWO, Electronic Arts'ERTS biggest challenge won't be convincing a skeptical board.

Instead EA's toughest assignment will be to keep Sam and Dan Houser, the creative geniuses behind Take-Two's biggest franchise, Grand Theft Auto, from leaving after the deal is done. It also has to make sure the key talent at Rockstar Games, the development studio of Take-Two and the label founded by the Houser brothers, stay put.

It's a larger problem than EA would like to admit. The video-games industry is littered with examples of development studios where developers and co-founders have walked out after an acquisition.

And some industry watchers say, at this point, the Houser brothers are a flight risk.

"The chances that they will leave are very good," says Shane Satterfield, editor-in-chief of GameTrailers, part of Viacom'sVIA MTV Networks. "I think they are very free spirited guys."

Culturally, Rockstar Games and EA couldn't be more apart. For instance, it is unlikely that EA will ever release a game such as Manhunt 2, the latest offering from Rockstar. British regulators criticized Manhunt 2for its excessively violent content and denied a rating -- a step that barred the release the game in the UK.

And there's EA's past to consider. The company has gained a reputation for killing the independent spirit of the studios it has acquired. Under EA CEO John Riccitiello's leadership that has changed, insiders say, but fears that EA's corporate culture could interfere with developer freedom persist.

There's also the question of how much it will cost to keep Rockstar's management on board. Analysts are concerned the costs could be so high that it could affect the studio's profitability.

EA cannot afford to lose the Housers, the crown jewels at Take-Two. "Rockstar is Take-Two," says Satterfield. "They are the ones behind Take-Two biggest hits, the Bully and Grand Theft Auto Series."

Because of its hostile bid, Riccitiello told analysts EA has not been able to speak to key employees of Rockstar, but hopes they will stay, if the merger goes through.

"This is an organization and leadership team that has survived six CEO transitions in the last five years, so under any circumstance, they (Rockstar) have staying power and they are resilient," said Riccitiello.

Rockstar's ability to be completely autonomous may have something to do with that, industry watchers say.

The label was founded in 1998 by Sam Houser, his brother Dan, Sam's friend Terry Donovan and Jamie King.

The Housers and King worked in the video games publishing division of BMG Interactive and moved when BMG was sold to Take Two in 1998. Along the way, they acquired DMA Design, a Scottish video games developer now called Rockstar North, which has since contributed to the Grand Theft Auto series.

"The Houser brothers run Rockstar like a small business," says Satterfield. "They are quite involved in the creative side of the games and they manage their staff closely."

The brothers also run their business differently. Unlike the rest of the games industry, Rockstar doesn't show its games to the press or analysts until a few weeks before their release.

The reclusive Housers almost never speak at conferences, attend trade shows or interview with video-games journalists.

"I have been in the industry for a decade and I have never seen them anywhere," says Satterfield. It's in stark contrast to EA studio heads and creative teams, who interact closely with the games industry.